It's coming down to crunch time on tax season for the 2017 tax year, and hopefully, you've gotten all the tax information you need from your employer and financial institutions by now. Unfortunately, some people don't discover until the last minute that there's a glaring mistake in the tax information that's on the forms they've received.
As tempting as it is just to ignore it and move forward, you're setting yourself up for a potential nightmare if you don't take steps to get that erroneous information corrected sooner rather than later.
The danger with tax form mistakes
It's not uncommon for employers to make mistakes with W-2 forms or for financial institutions to goof up numbers on the various 1099s that they send out. Those mistakes should never stop you from claiming every penny of tax benefits that you're entitled to receive, and you're required by law to report correct numbers to the IRS, even when they differ from the tax information forms you've received.
However, the problem that often comes up is when taxpayers simply report the correct numbers on their tax returns without taking the additional step of having their tax information forms corrected. In that case, the IRS will get two conflicting sets of numbers that don't agree with each other -- one from your employer or financial institution and one on your return. This mismatch will create a red flag that can lead to your return being chosen for audit, especially if the discrepancy is particularly large.
How to handle tax form errors
If you discover a problem in the tax forms you've received, the best thing to do is contact your employer or financial institution to understand exactly why they chose the numbers they did. Sometimes, there might be an explanation involving something that you didn't know about, with the net result being that you could discover that your own numbers are wrong and the reported figures are correct. In other cases, some glitch might have caused the wrong numbers to appear on the information forms you received.
If you determine that your numbers are correct, make a request for your employer or financial institution to file an amended tax information form. You'll get a copy of that form, but more importantly, the IRS will receive its copy, as well. Once the IRS gets its copy of those numbers, its systems should reflect the correct figures, and your return won't trigger any further red flags.
When it's too late
When you discover errors early in tax season, it's easy to get those changes made before the mid-April tax deadline. But now that we're just days away from having to file, you won't necessarily be able to count on your HR department or your local bank or brokerage company to get everything done quickly enough to file on time.
You have two options to handle this situation. You can go ahead and file your full return, understanding that, depending on the timing of when your employer or financial institution corrects its tax information forms, you could end up triggering red flags if your return gets processed before the IRS receives the corrected information. Alternatively, you can file an extension request, paying any tax due, but giving yourself an additional six months to file. That can give the IRS time to process the changes your employer or financial institution will provide, decreasing the likelihood of a future audit.
Be smart about your taxes
It's never a comfortable situation when you have to go to an employer or financial institution to have them fix a mistake that they've made on your tax information forms. Nevertheless, if you want to avoid an even bigger hassle with the IRS, it's worth taking the time to fix the problem at the source.